Although there is no concrete protection read-across with the RDR at present there are number of concerns about its effect within the industry.
Lifesearch senior policy adviser Matt Morris says extending the FSA’s RDR paper to include protection would be “disastrous”.
Morris says while the feedback paper, released end of November 2008, makes no mention of including protection sales and advice, it is inevitable it will effect the sector.
He says applying the RDR principles to protection will only make the protection gap wider, rather than shrink it, a key industry objective for 2009.
He says: “You can’t sell protection on a fee-based model, it will be disastrous. It will mean less advisers will sell to the mass market because they won’t be able to get the general public to pay fees, and you’ll see a retreat to IFAs selling solely to high net worth clients. In short, less people buying protection and less people selling protection. Everyone loses.”
Likewise, Highclere Financial Services partner Alan Lakey says it is unfeasible and unrealistic for advisers to work under two sets of rules and requirements.
He says: “The FSA accepts that there are pension, savings and protection gaps and has confirmed that reducing these gaps is one of its aims. Reducing access to whole of market advice by the measures outlined within the RDR Feedback Statement will not help reduce the gaps, it will widen them.”
In its current form, the paper states: “Firms can elect to sell pure protection products under either Cobs or Icobs, so we will assess the implications of the RDR for these markets as we develop proposals for Cobs.”
“The RDR proposals may have further consequences for investment firms that also operate in mortgage and general insurance markets. We have not carried out an in depth analysis yet. However, preliminary analysis of firms’ business models suggest that for example, some banks may consider reflecting the changes required for their investment distribution business by applying the same model to both investment and non-investment business. Similarly, insurance firms may decide to adopt the same model for distributing their investment and general insurance products, and this might in turn impact product design in both markets.”
Lakey highlights the phrase “we will assess the implications of the RDR for these markets as we develop proposals” as being of particular concern.
I invite Money Marketing readers to email firstname.lastname@example.org with suggestions on the position of protection within the RDR.